When it comes to travel insurance claims, Hannah Yun was about as sure as anyone that hers would be successful.

She’d bought a gold-plated “cancel for any reason” policy for a trip to South Korea. When her boyfriend proposed and she decided to call off the trip to start planning her wedding, she thought that collecting a check would be just a formality.

Travel Guard, the company she’d purchased the policy through, turned down her claim on a technicality. Yun, a college student in Salt Lake City, had originally told the company that her plane ticket had cost $1,090; she’d actually paid $1,092.50.

(Andrew Bannecker for The Washington Post)

Denied because of a $2.50 price difference? You bet.

“It just doesn’t make sense,” says Yun, a refrain that I hear often. Complaints about seemingly arbitrary rejections cross my desk at regular intervals. No surprise: Travel insurance is a $1.8 billion-a-year industry, according to the US Travel Insurance Association, an industry trade group. And it has been growing steadily, from $1.3 billion in 2006 to $1.6 billion two years later to the latest figure, from 2010.

It’s no shocker in another sense, too: The travel insurance business is generally profitable, the occasional volcanic eruption or tsunami notwithstanding, and critics say that the only way it stays that way is by rejecting most claims, particularly the expensive ones. That’s difficult to prove — or disprove. The industry insists that its rejection rates are low. About one in six policyholders will file a claim on their insurance, according to the association, and fewer than 10 percent of those claims are denied.

Yun was among that unhappy minority. When I asked about her claim, Carol Mueller, a vice president at Travel Guard, said that the company had reviewed the case carefully and that according to its records, Yun had claimed — and repeatedly verified — the $1,090 ticket price. “The full cost of all non-refundable prepaid trip arrangements is insured at the time of purchase,” she told me. “Ms. Yun did not insure her full trip cost as listed on her itinerary at the time of her insurance purchase, and that was the criterion for her denial.”

Seriously? The rejection seems absurd to the average traveler, until you take a little time to understand how the travel insurance business works. I’ve spent the past year studying it, in part because I’ve been hearing about so many policy rejections and in part because a lot of my readers buy travel insurance hoping that it will protect them from some of the unbelievably awful things that I write about every day on my blog.

I should also note that my Web site attracts a fair number of sponsorships from travel insurance companies and sellers of insurance. Consider this my disclosure. I’d like to think that it doesn’t affect the fairness of my coverage, but I’m sure that you’ll let me know what you think once you’ve finished reading.

* * *

To understand why a travel insurance company does the often confounding things that it does, you have to know more about the actual policies and talk with insiders who are familiar with the claims process. Travel insurance policies are set by underwriters, the entities that take on the risk of insuring you on your vacation. For example, Travel Guard is underwritten by the National Union Fire Insurance Co. of Pittsburgh, and that company gets to tell Travel Guard how to word its policies. The verbiage doesn’t leave much to the imagination.

Take trip interruptions, for instance. When you buy a policy, your travel agent might tell you that you’ll be covered if your trip is interrupted. But the policy itself will strictly define the terms.

For example, an interruption can be covered if it’s caused by an “unforeseen” circumstance. A sample Travel Guard policy defined that as the sickness, injury or death of an insured person, or of an immediate family member, traveling companion or business partner. “Injury or sickness must be so disabling as to reasonably cause a trip to be canceled or interrupted,” it adds.

Few travelers bother to read that language before buying a policy. Slightly more will review it when they need to make a claim, but it’s still a considerable minority. Even when their claim is turned down, they try to appeal it by referring to their travel agent’s promises or arguing with the rejection letter without knowing what their policy actually says.

Dan Skilken, who runs the travel insurance Web site TripInsurance.com, says that insurance companies play it by the book when a traveler files a claim. They consider the facts of the claim at face value; if the policy covers it, they cut a check. If it doesn’t, they won’t. “The reason for a denial is usually pretty simple,” he says.

It was in the case of David and Mary Phillips, who bought a $387 policy through Allianz Global Assistancefor a recent cruise to Brazil. Unfortunately, they ran afoul of one small detail: Neither the cruise line, Azamara, nor their travel agent had told them that U.S. citizens must have visas to travel to Brazil. As a result, they were denied boarding on the boat, and they lost their $6,739 cruise.

David Phillips, a retired doctor in San Mateo, Calif., was upset about his ruined vacation and even unhappier that Allianz rejected his claim. But the Phillipses’ insurance policy is clear: It doesn’t cover trip interruptions that result from visa or passport problems.

To claims adjusters, such denials are as obvious as the quickest way from their cubicle to the water cooler. But to outsiders such as Yun and Phillips — and me, too — they’re not.

A few months ago, I had an opportunity to visit the Richmond offices of Allianz, and I came away with a better understanding of one of the travel insurance industry’s greatest mysteries: the apparent disconnect between insurance companies and their customers. The folks I met were proud of their product and could offer case studies of the many customers they’ve helped. But because of the way travel insurance policies are written, they often see the world in a binary way: yes or no, covered or not covered.

Every exception to that worldview must be approved at a high level. When customers grumble about having their claims denied, these insiders are genuinely baffled. “Didn’t you read the policy?” they ask.

As I stood in the understated suburban headquarters where every Allianz claim is processed, it all made perfect sense. Rules are rules, after all.

Mark Cipolletti, an Allianz vice president, says that his company has no choice in the matter. Insurance providers are strictly regulated by the states where they do business. “We’re subject to scheduled and unscheduled audits or reviews of our products and claims,” he says. “When we adjudicate a customer’s claim, we must follow the policy, or the contract with the customer, because if we deviate from the contract or treat one customer differently from another, then we become subject to fines and other punitive actions — like not being able to sell in that state any longer.”

But as you pull away, you start to understand why some travelers are angry. Some feel victimized by the travel agents and online retailers who sell these policies and don’t always explain them as thoroughly as they should. Upon reflection, they’re also angry with themselves for ignoring the policy details and assuming that the insurance would cover anything that could go wrong with their trip.

Which brings us back to Yun, who had every reason to believe that her insurance company would pay for her cancellation, no questions asked. Travel Guard seemed surprised that she hadn’t bothered to review the details of her policy; if she had, she wouldn’t have wasted her time with a claim.

“We’ve listened to all the calls with Ms. Yun, and while there were three opportunities when she could have corrected the total cost of her trip, this did not happen,” says Mueller, the Travel Guard representative. “As part of our commitment to providing astonishing customer service, we could have asked her a second and third time to double-check her exact trip cost, though we are not required or obligated to do so.”

Still, Travel Guard agreed to make one of those high-level exceptions to its rules and honored the claim.

Mueller was quick to add that I should let consumers know that they ought to read their policy carefully and make sure to fill out their paperwork correctly.

I agree. But maybe some travel insurance companies need to spend a little more time talking with their customers outside the claims process, if for no other reason than to understand why travelers are so disappointed when their policy doesn’t work as expected.

Elliott is National Geographic Traveler magazine’s reader advocate. E-mail him at chris@elliott.org.

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